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CR 94-207 Harley Hopkins Revenue Fund 1 y 0 \ V ~ ~ 1- '" .october 26, 1994 o P K \ I;l. Council Report 94-207 HARLEY HOPKINS REVENUE FUND Proposed Action. staff recommends approval of the following motion: Move to approve resolution 94-96 approvinq the defeasance of $2.425,000 taxable school lease revenue funds for Harley Hopkins pro;ect and authorizinq of the execution of an escrow agreement. Approval of this action will allow the defeasance to occur and the escrow agreement to be executed by the City Manager and Mayor. Overview. In September, 1990 the City of Hopkins acted as a conduit in facilitating the financing for the construction of the Harley Hopkins school building with the issuance of taxable revenue bonds. The payment of these bonds is secured strictly from the lease payments made by the School District to Told Development Company. As part of the lease agreement that the School District has with Told Development, they have the option to purchase the Harley Hopkins building this year, which they now wish to complete. In order to facilitate this process the School District must place sufficient funds into an escrow account in order to insure that there is adequate funds available to make interest payments on the outstanding bonds until the first call date on ~AUgUst 1, 2000. The City is being asked to execute the escrow agreements because it was an original party to the issuance of the subject bonds. Primary Issues to Consider. 0 What is the impact of this action? This action will allow the following to occur: 0 Replacement of the present source of bond payments. the School District lease payment, with a new source of payment, the proceeds within the proposed escrow account to be established. This account would be funded with dollars from the School District in an amount sufficient to payoff the bond at its first call date. 0 what is the risk to the city? 0 The City presently has no obligation to make any payments related to the existing revenue bond. with approval of the proposed action the only source of funds required to pay off the bonds would be the proceeds reserved within the escrow account to be established. Supporting Documents. 0 Resolution 94-96 0 Letter from Evanson Dodge, Inc. , dated October 24, 1994. ...~ow agreement. f( - /~ ~, ~ Jates D. Kerrig9n Dfrector of Planning & Economic Development - - --- - -- ---.-" -- .___n. .____ OCT-26-94 09,51 FROM,HOLMES & GRAVEN ID,6123379310 PAGE 2/2 RESOLUTION NO. 94-96 . RESOLUTION APPROVING DEFEASANCE OF $2~425,OOO TAXABLE SCHOOLLKASEREVENUE BONDS FOR HARLEY HOPKINS PROJECT AND AUTHORIZING EXECUTION OF AN ESCROW AGREEMENT WHEREAS, the City of Hopkins (the "City") issued it$ $2~425,OOO Taxable School Lease Revenue Bonds (the "Bonds") in September 1990 in connection with the acquisition and construction by HHP ~ Inc. (the "Company") of the Harley Hopkins Preschool Center (the "Project") ~ for the purpose of leasing the Project to Independent School District No. 270 (the "School District"); and WHEREAS, the School District is exercising its option. pursuant to the lease agreement to pu.rchase the Project from the Company ~ and as part of its purchase p:rice, will pay funds sufficient to defease the Bonds ill. accordance with their terms; and WHEREAS, from and after the date of such defeasance, the Bonds 'Will be secured solely by the federal securities purchased with such funds and held in a restricted escrow account to be applied exclusi'O'"ely to the payment of principal of and interest on the Bonds, and the Bonds will no longer be secured by the Project or any obligation of the Company or the School District; e NOW, THEREFOR, BE IT RESOLVED by the City Council of the City of Hopkins ~ M:in:o.esota: L The application of such fUD.ds to the defeasance of the Bonds is hereby approved. 2. The Mayor and City Manager- are authorized to execute an escrow agreement and related documents to evidence the defeasance of the Bonds approved hereby. Dated: November 1, 1994 Mayor ATTEST: James A. Genellie, City Clerk . Sl'lG78319 RUO-50 . - EVENSEN DODGE INC October 24, 1994 Mr. James Kerrigan Economic Development Director City of Hopkins 1010 1 st. Street Hopkins, Minnesota 55343-7573 Re: $2,425,000 Taxable School Lease Revenue Bonds Dear Jim: The purpose of this letter is to discuss the defeasance of the above referenced bond issue, The $2,425,000 Taxable School Lease Revenue Bonds were issued by the City of Hopkins in September, 1990 as a conduit financing in connection with the construction of the Harley Hopkins school building. The bonds are secured by a revenue agreement between the City of Hopkins and HHP Holdings and the revenue agreement is secured by a lease agreement between the Told Development Company and the Hopkins School District. e Under the lease agreement, the school district has the option to purchase the building this year at a specified price. However, the District must satisfy any outstanding mortgages or liens against the building before the purchase can take place. As we have discussed over the phone, it is the Hopkins School District's intention to purchase the Harley Hopkins building this year. They have begun that process and must now satisty the lease requirements by providing sufficient funds to defease the bonds that were issued by the City for this project. We have been engaged by the District to assist with the necessary calculations, coordination and purchase of securities to accomplish the defeasance of the bonds. In that capacity, we have made initial contact with the City concerning the need to defease the bonds, we have discussed the defeasance with Norwest Bank, the trustee for the bonds, to determine their requirements for the bond defeasance, we have engaged Dorsey & Whitney, the District's bond counsel, to prepare an escrow agreement to be executed by the City and Norwest and we have engaged Grant Thornton, an independent accounting firm, to prepare a defeasance verification report the purpose of which is to verity our escrow calculations and provide assurance that sufficient funds will be place in the escrow account to satisty the defeasance of the bonds. The costs of the defeasance will be born by the Hopkins School District. The closing on the purchase of the Harley Hopkins building is currently scheduled for this Wednesday, October 26th. The closing will be subject to the successful defeasance of the . bonds which is scheduled to occur on Friday, October 28th. Once the closing has (,()I C;p,"onrl /\Vt'lllll:' SUlIl!" 511itt. S I ()II, J'vlinl1c-,llloli" i\1~ ~'j-l(I.! b 1-2r_~ :Hi:.i-~:; tj(j(J/.\ 'lH\"'n(J F/\\ hL2;: :I--\-~--'h.l e occurred on the 26th" Evensen Dodge will take bids to purchase investments for the escrow and perform the final escrow computation. These calculations will be provided to Grant Thornton for verification, the escrow agreement will be completed and signed by the City and Norwest so the defeasance can take place on the 28th. On the 28th., the purchased securities will be transferred to Norwest for the escrow account and the bonds will be legally defeased. It is our understanding that no action is required on the part of the City to defease the bonds, but you should check with your own counsel to confirm this. We do suggest that the City execute an escrow agreement with Norwest. The purpose of the escrow agreement is to assure that Norwest will take the responsibility of making the remaining principal and interest payments on the bonds from the escrow account and of calling the bonds at their first call date on August 1, 2000. I am enclosing a draft of both the escrow account and the accountant's verification report. I am copying Steve Mielke as well since his signature is to appear on the escrow agreement. Please feel free to call me with any questions or concerns you may have. We have been proceeding on the assumption, based upon our earlier conversations, that the City would have no problems with the defeasance of the bonds. Please let me know as soon as possible if this procedure does cause the City a problem that would result in any delays in this time schedule so that we can notify the necessary parties if a delayed closing were to occur. Once again, if we can be of any assistance to you in your review of the e defeasance, please let me know. Yours truly, &~EN.D D~' ~ Christy n~ Senio Vice resi nt c.c. Steve Mielke Terri Groen Polly Berquist David Shapley . . II LIST OF PARTICIPANTS II $2,425,000 TAXABLE SCHOOL LEASE REVENUE BONDS DEFEASANCE HARLEY HOPKINS BUILDING Purchaser of Building Financial Advisor Hopkins School District Evensen Dodge, Inc. 1001 Highway 7 601 2nd. Avenue S., Suite 5100 Hopkins, MN 55343 MilU1eapolis, MN 55402 David Shapley, Director of Business Affairs Christy Lyru1e Myers, Senior Vice President 988-4001 David Seibert, Associate 338-3535 Issuer of Bonds City of Hopkins City Hall Trustee and Escrow Agent 10 I 0 First Street S. Norwest Bank Minnesota Hopkins, MN 55343 Corporate Trust Department 6th. Street & Marquette Avenue James Kerrigan, Economic Development Minneapolis, MN 55479-0069 e Director 939-1355 Polly Berquist Steve Mielke, City Manager 667-4553 939-1327 District's Attorney for Building Purchase Verification Accountant Rider,Bennett, Egan & Arundel Grant Thornton 2000 MetropolitanCentre 200 S. 6th. Street, Suite 500 333 South Seventh Street Miru1eapo1is, MN 55402-1459 Minneapolis, MN 55402 Joe Smith T elTi Groen 332-0001 Ext. 237 340-88962 Bond Counsel (Escrow Agreement) Dorsey & Whitney 2200 First Bank Place East Minneapolis, MN 55402 J 01111 Kirby 340-5665 . 142067 fJ " .( ''L~, 1 -, ,. \,i, '.1)'. C \!\ r. ..j;~____ ~.- ESCROW AGREEMENT . THIS ESCROW AGREEMENT, between the City of Hopkins, Minnesota (the Issuer) and Norwest Bank Minnesota, National Association, in Minneapolis, Minnesota (the Agent); WITNESSETH, that the parties hereto recite and, in consideration of the mutual covenants and payments referred to and contained herein, covenant and agree as follows: 1. The Issuer has duly issued, pursuant to an Indenture of Trust, dated as of September 1, 1990, between the Issuer and the Agent, as Trustee (the Indenture), $2,425,000 principal amount of Taxable School Lease Revenue Bonds (Harley Hopkins Preschool Project), Series 1990, dated as of September 1, 1990 (the Bonds), of which $2,305,000 principal amount of Bonds remain outstanding. Pursuant to Article VIII of the Indenture, the Issuer has received $2,750,655.26 from Independent School District No. 270 (Hopkins), Minnesota (the Funds), to be used to defease the outstanding Bonds (the Defeased Bonds) as of the date hereof. 2. The Issuer has, simultaneously with the execution of this Agreement, transmitted the Funds in the amount of $2,750,655.26 to the Agent. The Funds shall be be deposited into a special escrow account (the Escrow Account) e created as a subfund of the Bond Fund established pursuant to the Indenture. $2,750,023.85 shall be used to acquire the securities listed on Exhibit A-I of the Defeasance Verification Report, dated October 14, 1994, prepared by Grant Thornton (the Report) attached hereto as Exhibit I and the remaining $631.41 shall be used to create a beginning cash balance in the Escrow Account. As set forth in the Report, sufficient cash flow will be available in the Escrow Account to pay the principal of and interest on the Defeased Bonds as such becomes due to and including August 1, 2000 (the Redemption Date), and to pay the principal balance of Defeased Bonds called for redemption on the Redemption Date. 3. The Agent acknowledges receipt of the Funds and agrees to apply the Funds in the manner and for the purposes set forth in Section 2 hereof. The Agent will remit from the Escrow Account to the holders of the Defeased Bonds the money required from time to time for payment of principal of, redemption price and interest thereon. The Agent will also (i) not less than 30 days following the date hereof cause the Notice of Defeasance relating to the Defeased Bonds, attached hereto as Exhibit II. to be mailed to the holders of all presently outstanding Defeased Bonds and (ii) cause the Notice of Redemption relating to the Defeased Bonds, substantially in the form attached hereto as Exhibit III. to be mailed to the holders of all outstanding Defeased Bonds to be redeemed on the Redemption Date not less than 30 days nor more than 60 days prior to the Redemption Date. . 4. The Agent acknowledges that arrangements satisfactory to it for . compensation for all services to be performed by it as Agent under this Agreement have been made and the Agent expressly waives any lien upon or claim against the moneys and investments in the Escrow Account. 5. Within 60 days following the close of each fiscal year of the Issuer and the close of the Escrow Account, the Agent shall submit to the Issuer a report covering all money it shall have received and all payments it shall have made or caused to be made hereunder during the preceding fiscal year or portion thereof. 6. It is recognized that money and investments held in the Escrow Account from time to time shall remain vested in the Issuer but subject always to the prior charge and lien thereon of this Agreement and the use thereof required to be made by the provisions of this Agreement. The Agent shall hold all such money and investments in a special trust fund and account separate and wholly segregated from all other funds and securities of the Agent or deposited therein. The Agent shall not be required to reinvest any funds held from time to time in the Escrow Account unless the Agent has received a written direction to do so from the Issuer specifying the reinvestments to be made, which reinvestments may only be made in direct, general obligations of the United States maturing on or before the next interest payment date for the Bonds. It is understood and agreed that the responsibility of the Agent under this Agreement is limited to the safekeeping and segregation of the moneys deposited with it in the Escrow Account, the investment e of such moneys in accordance with this Agreement, and the collection of and accounting for the principal and interest payable with respect thereto. Any funds remaining in the Escrow Account upon full payment of the Bonds shall be remitted to the Issuer. 7. This Agreement is made by the Issuer for the benefit of the holders of the Defeased Bonds and is not revocable by the Issuer, and the funds and securities deposited in the Escrow Account and all income therefrom have been irrevocably appropriated for the payment of principal of and interest on the Oefeased Bonds prior to and including the Redemption Date and the payment and redemption of the Defeased Bonds called for redemption on said date, in accordance with this Agreement. This Agreement may not be amended except to (i) sever any clause herein deemed to be illegal, or (ii) cure any ambiguity or correct or supplement any provision herein which may be inconsistent with any other provision, provided that the Agent shall determine that any such amendment shall not adversely affect the owners of the Defeased Bonds. 8. This Agreement shall be binding upon and shall inure to the benefit of the Issuer and the Agent and their respective successors and assigns. In addition, this Agreement shall constitute a third party beneficiary contract for the benefit of the registered owners of the Oefeased Bonds, as their interests may appear. Said . -2- third party beneficiaries shall be entitled to enforce performance and observance by . the Issuer and the Agent of the respective agreements and covenants herein contained as fully and completely as if said third party beneficiaries were parties hereto. 9. Upon merger or consolidation of the Agent, if the resulting corporation is a bank or trust company authorized by law to conduct such business, such corporation shall be authorized to act as successor Agent. Upon the resignation of the Agent, which shall be communicated in writing to the Issuer, or in the event the Agent becomes incapable of acting hereunder, the Issuer reserves the power to appoint a successor Agent. No resignation shall become effective until a successor agent has been appointed. IN WI1NESS WHEREOF the parties hereto have caused this instrument to be duly executed by their duly authorized officers, on the 14th day of October, 1994. CITY OF HOPKINS, MINNESOTA By Its Mayor -- (SEAL) And Its City Manager NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Agent (SEAL) By Its . -3- EXHIBIT II . NOTICE OF DEFEASANCE $2,425,000 TAXABLE SCHOOL LEASE REVENUE BONDS SERIES 1990 (Harley Hopkins Preschool Project) Norwest Bank Minnesota, National Association, as trustee (the "Trustee") under the Indenture of Trust dated as of September 1, 1990 (the "Indenture"), from the City of Hopkins, Minnesota (the "Issuer"), hereby gives notice that a deposit of direct, general debt obligations of the United States of America (the "Securities") and cash (the "Cash") has been made with the Trustee in amounts and maturities sufficient to pay when due all of the principal of and interest due on the above-title bonds (the "Bonds"). The Securities and the Cash have been delivered to the Trustee free and clear of all liens, encumbrances or other interests of any person other than the Trustee. The Securities constitute "Governmental Obligations" as that term is defined in the Indenture. Irrevocable notice has been given to the Trustee that the Issuer elects to have the Bonds redeemed on August 1, 2000. The deposit of the Securities and the Cash was made on October 14, 1994, and, as of that date, the Bonds are deemed paid in full in accordance with Article VIII of the Indenture. Until the redemption date of August 1, 2000, payments of principal and interest on the Bonds shall be made as provided in the Indenture. On August 1, 2000, the redemption price of the Bonds (being 100% of the principal amount thereof plus accrued interest) will be due and payable at the principal corporate trust office of the Trustee upon presentation and surrender of the Bonds. In .ccordance with the Indenture, the Trustee agrees that it will provide a notice of redemption of the Bonds to the alders thereof at least 30 days prior to August 1, 2000. From and after August 1,2000, interest on the Bonds will cease to accrue. The Bonds will continue to be subject to mandatory sinking fund redemptions through August I, 2000 in accordance with the Indenture. NORWEST BANK MINNESOTA, NATIONAL ASS<XIATION, TRUSTEE Dated: October 14, 1994 By: Title: . . EXHIBIT ill NOTICE OF REDEMPTION $2,425,000 Taxable School Lease Revenue Bonds (Harley Hopkins Preschool Project) Dated September 1, 1990 City of Hopkins, Minnesota Notice is hereby given that all Bonds of the above issue which mature on August 1, 2011, bear interest at the rate of 10.90% per annum and bear an assigned cusrp number of , are called for redemption and prepayment on August 1,2000. The Bonds will be redeemed at a price of 100% of their principal amount plus accrued interest to the date of redemption. Holders of such Bonds should prescnt them for payment on or before said date, on which date they will cease to bear interest. A form W-9, Payer's Request for Taxpayer Identification Number, must be completed and returned with the called bond or 31 % of the bond redemption proceeds will be withheld. Payment of bonds to be redeemed wiII be made on and after August 1,2000 by submitting said bond along with the completed form W-9 to the following address: By Mail or Courier Service: By Registered or Certified Mail: In Person, By Hand: Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A. Corporate Trust Services Corporate Trust Operations Corporate Trust Services-12th Floor 6th Street & Marquette Ave. P. O. Box 1517 Northstar East Building . Minneapolis, MN 55479-0069 Minneapolis, MN 55480-1517 608 Second Avenue South Minneapolis, Minnesota If you request payment of principal and/or interest via wire transfer, please be advised there is a wire transfer fee which will be deducted from your payment. Additional information may be obtained from the undersigned or from Evensen Dodge Inc., 601 Second Avenue South, Suite 5100, Minneapolis, Minnesota 55402 (612-338-3535), financial consultants to the City of Hopkins, Minnesota. Dated; October 14, 1994. BY ORDER OF THE CITY COUNCIL CITY OF HOPKINS, MINNESOTA ill. Steve Mielke Its City Manager .. The Registrar shall not be responsible for the selection or use of the CUSIP numbers, nor is any representation made as to their correctness indicated in this Notice of Redemption or on any Bond. They are included solely for convenience of the Holders. . -5-